Bond notes to account for 50% of money in circulation

BOND notes are likely to end up accounting for 50% of the money in circulation by year-end given their current dominance in a both the formal and informal markets, a local economist has said.

Ashok Chakravarti, an economic consultant in the Office of the President and Cabinet told delegates at the Confederation of Zimbabwe Retailers breakfast meeting in Harare on Tuesday that dollarisation had now become a dead end.

"By December 2017, bond notes may be 50% of currency in circulation. It is then no longer a surrogate currency, but a new Zimbabwe dollar," Chakravarti said.

"Dollarisation is a dead end unless the country has a source of United States dollars."

He said, as such, the Reserve Bank of Zimbabwe (RBZ) has been forced to inject more of the bond notes currency to alleviate currency gaps on the market.

The RBZ is already in talks with the Afreximbank, which is backing the bond notes in circulation through a US$200 million facility to extend it even further.

Already, recent surveys conducted by this paper on cash dealers and the RBZ's monthly economic reviews already point to an increase in bond notes over the United States dollar or the South African rand.

Adding to this, the central bank is importing about $5 to $10 million in United States dollars cash every fortnight, instead of the originally envisaged $10 to $15 million.

As such, Chakravarti's argument adds more weight to the fact that bond notes will soon become the central currency in circulation in the country and by de facto, the new Zimbabwean dollar.

According to the RBZ, only 25% of transactions in the formal sector are cash with the majority of that being bond notes and estimate that 75% of transactions in the informal sector are cash with the majority of that being bond notes.

Recently, RBZ governor John Mangudya revealed that they were being forced to draw on the bond notes facility as there should be $800 million cash in circulation, yet this was not the case.

On the parallel market, bond notes are trading at a 5 to 7% discount vis-à-vis the United States dollar, and electronic balances reportedly exchange at a 15 to 20% discount.

Financial expert Persistence Gwanyanya said there was a cash and nostro funding gap of more than $300 million which would make illicit foreign currency dealings difficult to control. - newsday